REPORT: GM lobbying Congress for $7B in tax relief
Ask for a little help from the government, and the next thing you know you're asking for the government to protect you from the very help it's giving you. General Motors is restructuring its debt load by offering equity shares instead of cash to debt holders, namely the government and the UAW. The UAW transaction concerns the VEBA health care fund in that GM wants to pay its obligation to the fund with shares.The issue is that this transaction is a debt-asset swap and comes with a distressed asset tax (DAT) of $7 billion. The DAT was codified in 1986 to prevent companies from buying money-losing companies just to avoid paying taxes. In GM's case, the debt-asset swap counts as corporate income, but GM can claim it's 2008 losses against that income, greatly reducing its tax bill.
If the tax isn't waived, GM will need to immediately return $7 billion of the money it was just given. It is talking to the Treasury Department, but so far it's been no dice. GM has been lobbying to have a waiver provision put in the economic stimulus bill currently being wrangled over in the Senate, yet there's also been no movement there, either. It's almost inconceivable that the government will demand GM pay the tax. It's equally hard to believe that this is even taking place.
[Source: Detroit News via Market Watch]
Reader Comments (Page 1 of 1)
Tourian 11:26AM (2/02/2009)
Seems like a no-brainer to me. Obama will give them the relief.
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Smegley 2:41PM (2/02/2009)
Actually is sounds like the Treasury should pay the tax to itself since the federal government is the one that bought the distressed asset.
Of course in doing so (paying itself) the government will claim to have done a good job in increasing revenues.
BoxerFanatic 11:28AM (2/02/2009)
Are these morons just now figuring out what
*CONFISCATORY TAXATION*
...really means?
Are you people just realizing this?
The government does this every day, and has been doing it for the better part of a century. spend money to solve problems that the government created, and then tax the money the government spent, once it is in private hands.
FLAT SALES TAX, with a base cost of living rebate/refund. That is the only way to get back to sanity. Everyone who buys anything pays taxes. Government gets it's hands out of your earning power, your savings and investments, and stops taxing corporate activity, which just gets expensed to the customer anyway.
Governments never earn a dime, they seize LOTS of dimes.
Businesses don't pay taxes, their customers/clients do.
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Tim 11:38AM (2/02/2009)
"spend money to solve problems that the government created, and then tax the money the government spent, once it is in private hands."
How did government create the problems? Was it the huge tax deductions you get from large trucks? Was it the more lenient emission standards for trucks? Or was it the relaxed CAFE standards for trucks that hurt them?
mk 12:07PM (2/02/2009)
The government helped (not solely responsible, but not clean, either...)
low taxation on trucks, but then CAFE standards that punish for having big, heavy thirsty vehicles. Gee, how could anyone get mired in that...
High costs for impact crash testing and standards, plus the costs of technically meeting those demands. Some good, some stupid, but all should be driven by market forces, and safety demands of the customers, not of the government.
High corporate taxation, second highest in the world, by country.
High union wages and benefits, which the government helps push, because most union wage measures are based on a multiplier of the minimum wage. The government harps on the minimum wage as a straw-man argument that is false, in order to push up the minimum wage, to push up wages that are multiplied from the minimum wage. Nobody supports a family on minimum wage. Working at McD's or the convenience stores have long paid more than minimum wage, and a full time capable adult, most of the time, can find a better paying job than minimum wage.
High income taxes on the populace has helped stifle american's buying power, and that effects the demand on big-ticket items like cars.
The government has been pushing economic bubbles around for at least a decade, and the banking/mortgage debacle has had economy-wide effects on credit, which affects commercial paper, including credit for the Big 3, and it REALLY affects the populace, which also helps fuel the 30% drop off in demand in the last quarter.
There is not one aspect of your life that the government isn't either already involved in, or trying to get more involved in than it already is.
Sea Urchin 12:25PM (2/02/2009)
MK, but government forced Cola companies to recycle their bottles, that's like CAFE for them. Its called REGULATION, government does it to benefit people.
Now i know you think that car industry is above the law and government should not regulate it, but government did give the 25Bil to build greener cars.
alex 12:29PM (2/02/2009)
The govt did not give $25 billion to build green cars. They voted to give $25 billion to build green cars and then never delivered the money.
If you're looking for an example of how the govt had a negative impact on the auto industry, just look at our current situation. The Big 3 (well at least ford and GM) were doing fairly well at executing their (expensive!) turn around plans when the govt's lack of oversight of the banking industry pulled the rug out from under them. GM and Ford would be well on their way to recovery if the govt and wall street hadn't caused our entire economy to collapse.
Judy Zik 1:00PM (2/02/2009)
Government has it's place in keeping cars safe and up to a certain standard. Consumer pressure and market forces are not enough to keep our cars safe. Consumers have been pushing for safer cars since the 70's and yet look how many vehicles disappeared when the 1997 Impact standards came in because they wouldn't pass. As it is you have the Chinese banging down the door with cars that look nice but fold up like a tin can. We need crash testing now more than ever.
Frank 6:33PM (2/02/2009)
BoxerFanatic,
that is the Fairtax plan, everyone should look it up, if you agree with it take action.
http://www.fairtax.org/site/PageServer
yankee 11:33AM (2/02/2009)
LET THEM DIE
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Scott in ct 1:49PM (2/02/2009)
LET YOU DIE
Doug A. 11:44AM (2/02/2009)
Paying taxes with tax money? Seems just the kind of government stupidity we should be used to by now...
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jamie 12:01PM (2/02/2009)
Maybe Rick Wagoner should ask all the Senators and Representatives who just voted themselves a $4,700.00 raise in this downward spiraling economy for a special handout.
Then again, those government officials probably need some economic relief because a $175,000 a year doesn't go as far as it used to. Now, where did I park my LearJet?
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JWQ 12:41PM (2/02/2009)
Ya and Rick Wagoners salary of $2.2 million for 2008 and his salary for 2009 which will be paid for with bailout money leaves him as one to judge.
jamie 12:45PM (2/02/2009)
I am sure the Feds can scrounge up enough change to pay Rick's $1.00 salary for 2009.
Colin Smith 12:30PM (2/02/2009)
Erm? So, I'll repay the loan you've given me to get my near bankrupt business going again - maybe - with shares in that near bankrupt business. Yes: no? What?
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Patrick 1:55PM (2/02/2009)
The GM lawyers should have raised this concern during the initial loan proceedings. It is pretty wacko to require GM to perform the debt-asset swap to give them a loan that results in over half of the loan amount being taxes.
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jg 2:21PM (2/02/2009)
'The UAW transaction concerns the VEBA health care fund in that GM wants to pay its obligation to the fund with shares.'
No one was required to do anything. GM wants to do it this way. They want to avoid using cash and get out from under the tax obligation of not using cash. And they'll use Rush and his gang with their 'taxation is punishment' crap, to make sure everyone thinks poor poor GM is being bullied by the big bad Obama government. I have no sympathy. They knew tax law, they know this path produces this tax bill. They did it on the hope we'll allow them to avoid the tax. Frankly I can think of a different group who, if we're going to choose to short the government $7 billion, could better use the tax break.
compy386 2:07PM (2/02/2009)
I don't think this is really an issue, just an article to sell papers. The law is designed so that companies don't buy other companies purely for the sake of losses carried forward. I would think it's hard to argue that GM negotiating with bond holders is a tax dodge and not as a business case. I'm not a tax accountant but I wouldn't think the IRS has a case.
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